Healthcare in Europe – Planning for International Expansion: setting the stage, avoiding the trap.

In order to be able to launch your product in Europe there are a couple of things that need to be done before you set up in International for commercialization. The most common mistake and the easiest way to start on the wrong foot is to hire general and commercial staff before you have a plan, before you have even built the beginning of a reference file.

We will assume that you have launched in the US (or your country of origin) and it is unlikely that you will take the initiative to launch oversees simultaneously or soon after. During that time you will have sufficient opportunity to get a feel for what the opportunity could be in Europe or other parts of the world.

This is the second article in a series of five on the subject of taking your operation international and building an asset abroad. The order is READY….AIM…..FIRE.
Any initiative to change the order should be avoided.

It is the journey that is important, not (only) the destination!!

And you want to take that trip in such a way that it distracts you and your domestic organization as little as possible.

Things are rapidly changing in Europe (and internationally in general) and the direction the development is taking is as important (if not more important) as the point medical practice is at presently.  At this moment, the major attributes that providers are looking for is cost reduction, earlier hospital release, better but not more expensive products, fit to be used by lower cost personnel at lower cost places…..and I am only mildly exaggerating…..

Having the products positioned in the right way, the attributes supported sufficiently and professionally is just as important as finding the right distribution partners.

Keep in mind that:

– (Potential) distributors are seldom good advisors on the market potential. Their major objective is to “collect representations” (and I am generalizing here) and not to invest in market development essentials. The leading thought here is that “paper is patient” and any communication that paints a bright future for your business without sufficient arguments should be looked at with great caution.
– The same applies to medical professionals. Clinical evaluations are a source of income, to both physicians and European hospitals. The profiles that you would like to involve in the evaluation of your product do not always easily participate in clinical research. A knowledgeable distributor or international partner knows who to find and where to find them.
– The best place to get a reasonably good impression of the market, the arena and the competition are the large International exhibitions like “Medica” and “Arab Health” (respectively number 1 and 2 in terms of size). They are however also the two worse events if you have no plan other than “seeing where your feet will take you” and to select distribution partners rapidly, based on superficial arguments. Going around on the Medica Dusseldorf is quite an experience and the expression that comes to mind is “still confused, but on a much higher level”.

Getting some advice on how and what is not a bad idea and is money well spent.
The previous text boils down to this: for the first 2-3 years don’t let the international environment distract you in terms of launch and commercialization, unless you have solid, confirmed proof that you are making a major mistake or unnecessarily losing time.

Take the time to test and improve your knowledge on the international markets, establish contacts, collect information, identify channels and remember:

Going international too early ruins your bottom line, going too late will possibly influence your top line.

There will be a point in time, when you have figured out that it makes sense to roll out the international plan. By then you should also have figured out what you can expect in terms of effort and returns, in revenue and revenue growth and you should be able to handle the organizational requirements without jeopardizing your domestic success. Flying around internationally will generally bear exciting stories and good anecdotes that are not seldom on local happenings, strange habits and weird food, but disappointingly little tangible business results.

Before you let the balloon go up you should be able to fill two score cards:

The first one is the product score card that establishes the score in the light of how it will fit the medical requirements, the healthcare provision requirements, financial elements and competitive position, possibly more points to score. It should be as solid as possible and as objective as possible.

The second score card should tell you how your anticipated distribution system should get you the results that you need to see within the next 3- 5 years or how the selected distribution lines up against the alternatives. Will it be an international partner, a selection of national regional distributors, a direct operation, a strategic alliance or a combination of some of the above.
Part of the second score card is to decide which parts of the world, or which countries in EMEA (Europe, Middle East and Africa) or Asia you want to take-on first.

It depends on the kind of product and how you want to go about it, but there are a couple of common issues:

Results: success in some countries will facilitate developments in other countries. This can be language related or sometimes connected to other reasons. For most products, the German language countries are relatively homogeneous and can strategically (and in other ways) be taken as “a region”. Results in all three are accepted in other countries. Scandinavia (Nordic rather i.e. including Finland) can be considered as a single region and bear resemblance to market characteristics of the UK.

Growth in the traditional and larger Western-European markets is sluggish at the moment but the size is still substantial and by far the biggest. Countries like Russia and Turkey, parts of the Middle East and selected countries in Central Europe are growing well above average but they are still smaller in size.

General Medical Device statistics show depressed situations in some countries, but that may be in the traditional device segments, “old technology, old product concepts” but they may be a fantastic opportunity for technologies and product concepts that allow for delivery re-design, fast-tracking and cost reduction in general or other requirements of the coming decades.

Strategic decisions should be based on relevant information and new product or technology concepts can seldom be judged on
the basis of historic data, “old” (qualitative) e.g. market research that tells how big the apple market is … for your pears …

Relevance is the keyword here.

Nothing is more devastating than trial and error in this day and age. Switching from direct to distributor will have slowed you down and has cost you an arm and a leg. The other way around is not a whole lot cheaper.
After an exercise like this you may have clear insight in the direct (wasted) cost of the mishap. You haven’t seen the beginning of the damage that this has created in the market, the loss of revenue mid and long term.
Launching internationally is not easy and not cheap. Doing it the wrong way is ridiculously expensive. How about that for an open door?

If you have made up your mind and all the rest lined up, it may be time to take the next step and start building the file(s).

We would always advise you to select trial sites yourself and not leave that to (potential) distributors or other business or distribution partners. Only in the case of a (strategic) alliance with a European partner should you consider to leave that to the partner but stay as involved as you can.

Selection and management of early trials can be an essential element of product launch and it would be a mistake to wait till the end of the trial to get involved. An interrupted trial is better than a bad result and rearranging protocols may prove to be important.

The first objective of the trial is to confirm the claim of the product. In the case of a replacement technology or a product that is easier than when the product is a new concept, there must be a drastic change in practice. It also makes sense to incorporate health economic goals in the objectives of the trial and spend considerable effort in establishing other benefits (as mentioned before). Economic factors in particular have and continue to gain importance. A premium price for the sake of comfort or reputation is no longer considered a benefit. As indicated before, technologies or products that reduce costs, increase the speed in the fast lane, allow interventions in other places by other, less costly staff are of high interest for most providers in most countries.

The range of objectives is wide anyway. It is important to take a couple of things into account when selecting sites, establishing objectives, and negotiating conditions.

We will assume that you have ample clinical contacts and results in the US or your country of origin. The fastest, easiest and most efficient way is to see if your US sites have any cooperation, links or other kind of contact with European (International) sites. University hospitals may have cross-Atlantic links with hospitals in Europe, they may be personal contacts or it may be that they host physicians from abroad. It still requires a decent judgment on the quality and suitability of the European site but it may be an efficient way to go about it.

An additional advantage is that you may be able to use the same protocol as you did in the US.

If that option is not available it is necessary to identify proper sites in another way.

Be prepared! Clinical trials and product evaluations are for most hospitals a source of income. It is business, and the house rules do not always allow for short cuts and deals. The more influential the hospital is, the higher the price, unless the product or technology you come with is recognized by the hospital as being of paramount interest.

Other considerations:

Using the same protocol in all sites is beneficial. It may allow you to position the collection of trials as “multi-center”, adding up the number of patients treated.

If the timing allows it, it may be useful, even advisable to aim at publication. That automatically means a much longer time line, easily running up to around two years. The time it takes is of course highly dependent on the kind of product, the complexity and the concept (or not) etc.

If not, it should be possible to run a product evaluation within a year, but that requires constant pressure and attention from protocol, permission from ethical commissions, scheduling and reporting.

It may make sense to position the product evaluation as a “confirmation trial” that confirms the results available in the clinical file, rather than a clinical trial that starts from scratch and takes every element into account again.

The lead investigator is not necessarily the head of department. You should consider to go for the second level in the department, more eager, potentially interested and still part of the team in the same hospital.

A fast way to have a useful document in the hands of your sales force (your distributors) is to have a white paper produced that combines all relevant and available clinical results, draws a defendable conclusion and would be able to bridge the time until you have European papers and evaluations.

The acceptance/adoption of new products is in some cases “centralized” in the sense that some larger customers run their own evaluations and “approvals” (e.g. Public Assistance in Paris, Helios clinics – Germany etc.). The same applies to Central Purchasing that is leap-frogging through the European markets. In selecting trial sites you might want to take those elements into consideration.

There is a lot more to say about it: an important issue being the kind of product that you want to have evaluated. A simple, low tech, relatively low priced “me too” product generates less excitement than a revolutionary new product that will rock the market.

A remark on the reasons why it is necessary to have (build) a product file…or not.

One of the first things that you will need when launching the product is legitimacy, a sign of quality, efficacy and all the good stuff that will turn something new into something useful and tested. You can do that the long way, establishing it through extensive clinical testing, key-expert support, the seal of excellence etc. That takes time, effort and money. The shortcut is to seek a partner that will carry the product and will by the sheer reputation lend legitimacy to the product.

Nellcor, the most successful Medical Device venture after World War Two launched pulse-oximetry around 1987 in Europe (Internationally) and teamed up with Dräger (Dräger Werk Lubeck, the German Anesthesia/ICU equipment manufactures with a fabulous reputation for quality). The estimation is that the rate of acceptance is multiplied by a factor 3-5 as a result. Yes it reduced margin, yes it made the company lose out on its own reputation (being the reason that some German customers still think that Nellcor is a brand name of DWL) but that was a nice problem to have …..

So, in taking a product to the market there is a choice between seeking an alliance (not the same as “a distributor network” or taking the long route, with potentially better (different?) end results (financial, strategic) at a higher price, and more substantial investment.

When is it time to consider launching abroad? That is up to you. Some companies are very early, some are very late and there is no doubt a golden ratio or “Divina Proportia”. Half of the companies that went international think, in retrospect that they went too early and a quarter thinks that they went too late.

“The first AED’s were presented in Europe in the 1990’s. The manufacturer set up shop in the UK, had some early successes, did the first evaluations, identified potential and selling channels, hired staff and was ready to roll out in all of Europe, ready to meet the high revenue expectations that were developed on the basis of extrapolation…only to find that the use of AED’s was ONLY legally possible in the UK. In the rest of Europe only (trained) PHYSICIANS were allowed to apply the AED’s, reducing the first year’s potential with a factor…30… Oooops”.

In summary

Get the regulatory issues squared away before starting to fly the world. Assume that CE marking is a necessity but may not solve ALL issues. Every now and then you run into national, local or even hospital requirements that you thought you had squared away. Electrical safety testing by a local institute is a typical example of an unexpected “local rule”.

Check in the US, among your clinical/hospital contacts for European (international) contacts.

Stay away from hiring ANYBODY before you are pretty sure that there is water in the pool and how deep the pool is. If you start hiring, you’d be well advised to start with field based personnel, and not set out to find an office, furniture, etc. More than 3 people in an office lead, as by miracle to meetings… In any case, you should wait before hiring staff or signing up distribution partners before you have the product files sorted out.

Launching a product without the right, relevant product performance file, generated in Europe is asking for problems: a lot of unnecessary expenses, a whole organization or a bunch of distributors waiting for it to be ready.

Consider in which country/countries you want to start commercialization. Do not assume that it is always the best way to start in the UK or in Germany to kick-off the operation, you are ill advised to launch in too many countries at the same time.

Consider strategic alliances, distributor networks, or direct operations. After careful consideration, you’ll end up with some serious professional advice.

Be conservative on the revenue expectation. Only professional operations keep you out of double expenses for half the revenue (optimistically). International operations behave like ventures: “longer”, “more expensive”, and “different” are the keywords of evaluation. Double the cost and twice the time are the rule rather than the exception.

Establishing a few data points and extrapolating is not advisable. The geography, the healthcare systems, the clinical – organizational practice and a lot of other issues make Europe (still) a heterogeneous part of the world. We have seen ugly results of that in International P&L’s.

Let me share with you the concept of “Hull Speed”. For the boat people among you, this is familiar ground. Every hull of a boat has a specific, intrinsic speed, the speed that requires the optimal force to reach and maintain. In general a longer hull means faster with the same driving force (as in a sail or motor) and the formula to calculate hull speed is 3,5 times the square root of the length over the waterline, roughly (in meters/kilometers). More force beyond that optimum will create higher waves and burn more fuel than necessary, rather than increasing speed.
I like to look at setting up the international operation along the same lines. If results are below expectation it may make sense to change the “hull shape”, the way you are organized, rather than throwing more money at it, more noise, more promotion, more expenses, but not necessarily better results, increased speed …

Even in combination with a network of distributors you may want to consider keeping control (partly or entirely) of clinical support of your product, clinical evaluations, product training etc. Clinical consultants in the market may be of more importance than additional sales reps. It may even allow you to negotiate a lower margin with your distribution partners. The main advantage is CONTROL. You do not have to rely on third parties to be aware of what is happening in the market.

The best organizations I know manage the European operation, back office operation, central warehousing and logistics, even sales force management and marketing from a single location, one office in Europe. It is no problem to set up multilingual call centers in a country and arrange for centralized logistics. Local offices need staff and cost money and there is a limited need to be IN the countries in todays EU environment.

If you elect not to centralize the European organization as per the previous point, you should seriously consider making use of one of the third party logistics operations. A number of companies are able to perform the full range of back office functions, including technical service.

 

In article 3 of this series, we will go into setting up the organization in more detail, distributor selection, strategic alliance building, back-office alternatives and a few more do’s and don’ts.

About Helgert Van Raamt

Helgert van Raamt has 35 years of experience in running and setting up companies, big and small, in EMEA (and beyond). After his senior marketing positions with Organon Teknika and Abbott Labs and four years in Venture Capital as an investment manager for US, UK and NL based funds, he joined Nellcor Europe in 1989 and has lead this company through two consecutive M&A’s (Puritan Bennett and Mallinckrodt). The acquisition by Mallinckrodt for 2.7 Billion made Nellcor the most successful Medic venture after the Second World War. He left to set up the International Operation of Aspect Medical Systems and brought that to success. In three years it reached a revenue level of $10 million and was profitable two months after the start of the operation. Since then (2003) he has successfully advised numerous companies about setting up internationally or cleaning up an existing international operation, both independently and as a partner for TforG Group.